Standard Chartered settles: Britain's last decent bank is humbled in the US

Even before Standard Chartered agreed to a £217m settlement over money-laundering allegations last night in New York, the US regulators saw British banks as little more than rats’ nests squirming with rogue traders, rate fixers and tax avoiders.

Small wonder, perhaps, when a battery of investigations, led by American financial watchdogs and the US Department of Justice, have surfaced in recent weeks pointing to a disgraceful catalogue of misdeeds by some of the City’s largest lenders.

The banks involved now face billions of dollars in fines, while some executives and traders could even confront the fearful prospect of incarceration in American jails.

Giving in: Chief executive Peter Sands has struck a deal with a US regulator

Standard Chartered’s chief executive Peter Sands, who cut short his annual holiday and flew to Manhattan on a mission to salvage his bank’s battered reputation, has along with chairman Sir John Peace pulled off an 11th hour deal before a hearing scheduled for this morning.

Agreeing to pay a substantial fine, and consenting to the presence of a monitor in its US office is a major climbdown for the UK bank, which was last week insisting its virtually total innocence.

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It is resigned to paying further sums in settlements with other US regulators over the coming weeks.

Standard had, until these accusations landed, been viewed as the only British bank to have behaved decently in the crisis.

It was desperate to retain that standing. Yet faced with the power of the American watchdog to suspend its banking licence in the US, Sands obviously judged it politic to eat a portion of humble pie.

The charges laid against Standard Chartered depicted the once proud British stalwart, which traces its roots to trading with Asia in the days of Empire, as a ‘rogue institution’.

Standard was, its accusers claimed, motivated by sheer greed into chasing business from corrupt regimes including Iran – on which America still imposes trade sanctions – Burma and Sudan.

Money-laundering case: Standard Chartered has negotiated a deal with US regulators

The New York state department of financial services claimed the bank plotted with Iran to conceal more than 60,000 illicit financial transactions amounting to £160bn over nearly a decade.

That, it was alleged, ‘left the US financial system vulnerable to terrorists and corrupt regimes’.

Standard Chartered said it rejected the portrayal and argued it made only a relatively small number of genuine mistakes.

Its initial response to the accusations was to talk tough, but the bank, like others before it, swiftly concluded resistance was futile.

In a statement, the regulator said the settlement covered the full £160bn. But the real question is why, when the US authorities are pursuing British banks with such evident gusto, do our own regulators appear so lily-livered about doing the same?

The answer is that top executives at British banks are accustomed to a culture where bankers, politicians and regulators are all good chaps together.

Consider the following three peers of the realm: Lord Turner, who chairs the Financial Services Authority, previously served as a non-executive at Standard Chartered; Lord Davies, who leads a government-backed equality drive was its chairman and chief executive; former HSBC grandee Lord Green is a trade minister.

American watchdogs are more likely to cast themselves in the mould of the ruthless Prohibition-era lawman Eliot Ness, immortalised in the film The Untouchables.

And for all its bluster last week, Standard has become just the latest in a line of banks to be humbled by the might of America’s financial regulators.

Rivals have already succumbed. HSBC’s chief executive, Stuart Gulliver, has admitted that his bank’s failure to prevent moneylaundering in Mexico and the US was ‘shameful, embarrassing and very painful’.

He has been forced to set aside £450m to cover possible fines from US regulators.

Not only that, the Royal Bank of Scotland – majority owned by British taxpayers – is also under investigation in the US over failures in its money-laundering controls, including the possible breach of American trade sanctions on Iran.

Stephen Hester, its boss, has already agreed to the bank accepting a fine for substandard controls against moneylaundering, including, to his utter mortification, an £8.75m penalty at Coutts, the Queen’s bank, which is a subsidiary of RBS.

It is not the first time RBS has fallen foul of tough US regulators. The Department of Justice extracted $500m from RBS in 2010 after finding its Dutch offshoot ABN Amro – bought by former chief executive Fred Goodwin in a reckless takeover at the height of the financial crisis – had violated trade sanctions with Iran, Libya, Sudan and Cuba.

As for Barclays, it has paid far more dearly in America for its Libor inter-bank rate-rigging exploits, where it has been hit with £230m of fines, than it has in the UK, where it has been fined just under £60m.

The Department of Justice swung into action against Barclays and others over the wholesale abuse of the Libor rate-setting system, used as a benchmark which controls the price of trillions of pounds of mortgages and financial products.

The high street lender’s conduct was supposedly overseen in London by the supine industry trade body the British Bankers’ Association, but went unpunished for years despite warnings from the Americans – including some US employees of the bank itself that it was going on.

It took the vigour of the US system to bring the bank and its former chief executive Bob Diamond to book. Should anyone in the City doubt the will of the American authorities, they would do well to cast their minds back to the Enron fraud scandal that erupted a decade or so ago, and engulfed a £70bn company.

It led to the convictions of corporate titans Kenneth Lay, Enron’s founder and CEO, and Jeffery Skilling, its president. Lay died just before sentencing, but Skilling went down for 24 years and was fined £27m. In another similar case seven years ago, Bernie Ebbers, head of a telecoms giant called World- Com, was convicted in the US of securities fraud and conspiracy. Ebbers was sentenced to 25 years.

Bernard Madoff, meanwhile, the notorious fraudster, was sentenced to 150 years. Here in the UK, the culture is rather different.

In the case of RBS, an investigation by the Financial Services Authority found no evidence of ‘fraud’ or ‘dishonest activity’ by any ‘senior’ individual at the Scottish bank and decided that the bank had simply made ‘a series of bad decisions’.

So the only sanction exacted on Fred Goodwin has been the social shame of having his knighthood taken away – a snub many in the City still consider too harsh.

And you can be sure that, when it comes to British banks, the US authorities are not finished. In the Barclays Libor rate-fixing case, for example, the FBI is investigating 14 traders who worked at the bank.

Professor William Black of the University of Missouri-Kansas City, author of The Best Way To Rob A Bank Is To Own One, dismisses the authorities dealing with the Libor scandal in the UK as ‘the light touch of the Financial Services Authority, and the even lighter touch of the Bank of England’.

In stark contrast, he says, ‘in the US this is what’s called an “antitrust” case, because a cartel of banks is violating our laws. It’s a crime, so we can charge both the banks and its officers who are involved with felonies’.

Certainly, no British bank – or bankers – should be under any illusions about the Atlantic being much of a buffer between them and the US authorities.

In 2006, the socalled NatWest Three – a trio of British bankers – were extradited after they were indicted on fraud charges in Texas.

They served prison sentences in American jails.

‘The US is still tougher on the financial elite than anybody else in the world,’ says Professor Black. ‘These people seem like they have impunity right up until the point when someone actually goes, ‘Why don’t we charge the son of a b***h’, and then life gets very scary for them.’

If only the British authorities had such unrelenting willpower, perhaps the City of London would not find itself continuing to stumble from scandal to scandal.

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Standard Chartered settles: Britain's last decent bank is humbled in the US